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House pricesHome prices are expected to remain flat this year amid signs the slowdown in price gains could become entrenched, says the ANZ Bank.

It estimates house prices will plateau this year, at just over $550,000 on average, as contending forces of rising interest rates and a strong demand for employees work themselves out in the market.

“Further price weakness is expected over 2011 as the prospect of additional rate rises weigh on both affordability and investor sentiment,” said an ANZ senior real estate economist, Ange Montalti.

“While the market is vulnerable to weaker momentum becoming more entrenched, good support from healthy economic growth and a further tightening in rental markets should begin to shift perceptions over 2011-12.”

House prices have jumped from about $460,000 at the beginning of 2009 to close last year at about $550,000, according to ANZ analysis of their own research, as well as data from the Bureau of Statistics and the Reserve Bank.

However, prices began to flatten as buyers faced rising borrowing costs and the outlook for the global economy became more uncertain.

ANZ predicts that a shortage of available homes to rent will help spark prices by next year, providing a boost to what has been a lacklustre construction sector – now disrupted by floods.

The rental vacancy rate is tipped to fall below 2 per cent this year. “Builders will remain cautious while margins are vulnerable to sluggish house prices,” the ANZ report, Australian Housing Snapshot, said.

However, dwelling starts are expected to fall to 131,000 in 2011-12, from 149,000 in 2010-11, before picking up in 2012-13.

But this expected increase is “a far cry from the 180,000-plus dwellings required to merely stabilise the shortage at its already record high levels”, the ANZ report said.

Australia’s housing markets are among the least affordable in the English-speaking world, according to a recent report by the US real estate research group Demographia.

It examined house prices against household income in 325 markets, and ranked Sydney as the second least-affordable place to buy property after Hong Kong. Melbourne was also near the bottom of the pack.

ANZ predicts the Reserve Bank will raise interest rates from their current 4.75 per cent level this year.

Credit Suisse debt markets predict an official interest rate of 5 per cent by year’s end, but investors see no chance of a rate rise when the Reserve next meets on February 1.

Story by Chris Zappone www.domain.com.au

Tags: economy, house, housing, marketing, prices, property, real estate

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